Norkin v. DLA Piper Rudnick Gray Cary L.L.P. - Document No. 9

Norkin v. DLA Piper Rudnick Gray Cary L.L.P. Doc.
9
Case 1:05-cv-09137-DLC Document 9 Filed 11/23/2005 Page 1 of 17
UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
----------------------------------X
DAVID NORKIN,
Plaintiff,
-against- Case No. 05 CV 9137 (DC)
DLA PIPER RUDNICK GRAY CARY, LLP,
Defendant.
----------------------------------X
PLAINTIFF’S MEMORANDUM IN
SUPPORT OF MOTION FOR REMAND
Dockets.Justia.com
UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
----------------------------------X
DAVID NORKIN,
Plaintiff,
-against- Case No. 05 CV 9137 (DC)
DLA PIPER RUDNICK GRAY CARY, LLP,
Defendant.
----------------------------------X
PLAINTIFF’S MEMORANDUM IN
SUPPORT OF MOTION FOR REMAND
This memorandum is submitted in support of the motion by
plaintiff David Norkin pursuant to 28 U.S.C. §1434(c) and §1452(b)
to remand this action to the Supreme Court New York County, where
it originated. This malpractice action was removed solely on the
purported ground that it “arises in and is related to plaintiff
David Norkin’s Chapter 7 bankruptcy case...and the Chapter 11
bankruptcy case of Britestarr Homes, Inc...” Subject matter
jurisdiction is premised solely on 28 U.S.C. §1334.
As shown below, this case did not “arise in” the
bankruptcy proceeding, and, accordingly, the Court is required to
abstain from hearing the case and must remand it to the state court
[28 U.S.C. §1334(c)(2)]. Even if the Court determines that
abstention is not mandatory, the Court should exercise its
discretion and abstain from asserting jurisdiction and remand to
state court pursuant to 28 U.S.C. §§1452(b).

Background
This is an action for malpractice brought under New York
state law. A copy of the Complaint is annexed as Exhibit A to the
attached declaration of Richard M. Asche, dated November 23, 2005.
The plaintiff David Norkin (“Norkin”) alleges that defendant, a
large national law firm, gave him improper advice and violated
state conflict of interest rules during the course of its
representation of him.
As alleged in the Complaint, Mr. Norkin was the President
and a salaried employee of Britestarr Homes, Inc.
(“Britestarr”)(Complaint, ¶1), a company which intended to develop
land in Bronx, New York as a power plant (¶3). Norkin and
Britestarr retained defendant in 1999 to represent it in connection
with its development efforts (¶8). During the course of the
representation, defendant also rendered legal advice to Norkin
individually (¶18).
Britestarr entered into an agreement with ABB Equity
Ventures (“ABB”), a potential purchaser of the Bronx property,
giving the purchaser the option to purchase the land for a minimum
of $31.4 million (¶7). While the option was still in effect,
Britestarr encountered financial difficulties (¶15). Moreover, a
dispute arose between Britestarr and Norkin and ABB, resulting in
litigation (¶15).
3
While the litigation was pending, ABB conveyed to
defendant law firm an offer to settle the litigation and extend the
option period for an additional consideration of $1 million, enough
money to keep Britestarr in business (¶17). Defendant failed to
tell Norkin and Britestarr about this offer, but instead advised
Britestarr to file a bankruptcy petition (¶18). Of importance to
this case, the defendant also erroneously advised Norkin personally
to resign as President of Britestarr, thereby forfeiting
substantial salary and other benefits [¶23 and 33(a)]. It is
alleged that defendant’s advice to Norkin was improper and
constituted malpractice (Id).
Moreover, unbeknownst to Norkin and Britestarr, defendant
was simultaneously representing the owner of a TransGas power plant
project in Brooklyn, New York. This project would compete directly
with the project to be built on Britestarr’s property. Defendant
stood to receive a much larger fee as project counsel for the
TransGas project than the defendant would receive as counsel for
Britestarr and Norkin. Defendant never disclosed its conflict of
interest to plaintiff [¶¶24-26, 29(a)].
Plaintiff seeks damages solely in his own name from
defendant, independent of any damages suffered by Britestarr.
Specifically, plaintiff seeks compensation for lost salary and
other benefits caused by defendant’s erroneous (and conflict-
4
driven) advise to resign as President of Britestarr. (Complaint,
¶¶30 and 34, and first “Wherefore” clause).
The Bankruptcy Cases
In January 1997, two and a half years before Britestarr
or Norkin hired defendant, and five years before the events giving
rise to this action, plaintiff filed a voluntary petition under
Chapter 7 of the Bankruptcy Code in the Bankruptcy Court for the
District of Connecticut. As shown below, the damages sought by
plaintiff -- lost salary and benefits accruing post-bankruptcy –-
are not assets of the bankruptcy estate. Plaintiff cannot recover
– and is not seeking -- any damages as a result of damages
sustained by Britestarr on the loss by plaintiff of his Britestarr
stock.
As set forth in the accompanying declaration of Richard
M. Asche, prior to commencement of the action, plaintiff’s counsel
discussed the potential claims with Mr. Norkin’s trustee, who
declined to bring them in the name of the estate, possibly because
he believed that they did not belong to the estate or because he
did not wish to incur the expense of bringing the claims. The
Trustee and plaintiff entered into an understanding –- not yet
reduced to writing or approved by the Court –- that the Trustee
would receive a portion of any proceeds obtained by plaintiff in
exchange for a release of possible claims by the estate against Mr.
Norkin.
5
Britestarr is also in bankruptcy, having filed its
petition in 2002. None of the claims asserted in the Complaint
belong to Britestarr.
Removal to this Court
On October 26, 2005, the defendant removed this action to
this Court, purportedly on the sole ground that this case “arises
in or is related to” Mr. Norkin’s 1997 bankruptcy case and
Britestarr’s bankruptcy case. See, Exhibit B to the Asche
Declaration.
6
Argument
I.
THE COURT MUST ABSTAIN AND REMAND THIS CASE TO
THE STATE COURT PURSUANT TO 28 U.S.C. §1334(c)(2)
Assuming that this Court has subject matter jurisdiction
over plaintiff’s claims by reason of his agreement to share the
proceeds with the bankruptcy estate, the Court must nonetheless
remand the case to state court if it falls within the category of
cases described in 28 §1334(c)(2), which provides:
(2) Upon timely motion of a party in

a proceeding based upon a State law
claim or State law cause of action,
related to a case under title 11 but
not arising under title 11 or
arising in a case under title 11,
with respect to which an action
could not have been commenced in a
court of the United States absent
jurisdiction under this section, the
district court shall abstain from
hearing such proceeding if an action
is commenced, and can be timely
adjudicated, in a State forum of
appropriate jurisdiction [Emphasis
added].
§1334(c)(2) applies to cases removed from state court. Mt.
McKinley Insurance Company v. Corning Incorporated, 399 F.3d 436
(2nd Cir. 2005).
In Channel Bell Associates v. W. R. Grace & Co., 1992
U.S. Dist. LEXIS 13014 (S.D.N.Y. 1992), the Court enumerated the
prerequisites for mandatory abstention as follows:
7
Under the terms of §1334(c)(2), in

order for mandatory abstention to
apply to this action, (1) plaintiffs
must “timely” have brought their
cross-motion for abstention; (2) the
action must be based upon a state
law claim; (3) the action must be
“related to” a bankruptcy
proceeding, as opposed to “arising
under” the Bankruptcy Code or
“arising in” a case under the
Bankruptcy Code; (4) the sole
federal jurisdictional basis for the
action must be §1334; (5) there must
be an action “commenced” in state
court; and (6) the action must be
capable to being “timely
adjudicated” in state court. See
also, In re Howe, 913 F.2d 1138,
1142 (5th Cir. 1990) (“a district
court must abstain from hearing a
non-core, related matter if the
action can be timely adjudicated in
state court”)
At bar, there can be no doubt that five of the six
prerequisites are met: (1) plaintiff has made a timely motion (less
than 30 days after removal); (2) the action is based on a state law
claim; (4) the sole jurisdictional basis for the action is §1334;
(5) the action was commenced in state court; and (6) the action may
be timely adjudicated in state court. Thus, the only issue is
whether (3) the action is “related to” but not “arising under the
Bankruptcy Code” or “arising in a case under the Bankruptcy Code.”
In determining whether the sixth prerequisite for
abstention – that the case does not “arise from” a case under Title
11 -- the Court is required to determine whether the case is a
“core proceeding” within the meaning of 28 U.S.C. §157(b). If the
8
case is a “non-core proceeding,” the Court must abstain. Mt.
McKinley, supra, 399 F.3d at 447; Luan Investment S.E. v. Franklin
145 Corp., 304 F.3d 223, 232 (2nd Cir. 2002). 28 U.S.C. §157(b)
contains a list (albeit non-exclusive) of types of actions deemed
“core” proceedings. None of the categories referred to in that
section encompasses a garden variety action for damages by the
debtor or his trustee. All of the categories appear to relate to
some aspect of the administration of the estate and are therefore
integrally entwined in the Bankruptcy Court proceeding.
A core proceeding “must invoke a substantive right
provided by Title 11.” J.T. Moran Financial Corp. v. Phonetel
Technologies Inc., 119 B.R. 447 (B. Ct. S.D.N.Y. 1990). In that
case, the Bankruptcy Court held that:
The debtor’s state-law causes for

indemnification and for breach of
contract are not core matters
because they do not invoke
substantive rights provided by title
11 and are not central to the
bankruptcy court’s function in
administering the estate of the
debtor. A resolution of the
debtor’s state-law causes of action
would affect the amount of property
available for distribution to the
creditors and should be classified
as “otherwise” related to a case
under title 11 within the meaning of
28 U.S.C. §157(c)(1). [Emphasis
added].
(Id at 451). See also, Braniff International Airlines, Inc. v.
Aeron Aviation Resources Holdings II, Inc., 159 B.R. 117 (E.D.N.Y.
9
1993); In re Private Capital Partners, Inc. v. RVI Guaranty Co.,
Inc., 139 B.R. 120 (B. Ct. S.D.N.Y. 1992). And, as the Court held
in In re Emergency Beacon Corp., 52 B.R. 979 (S.D.N.Y. 1985):
The term non-core proceeding is not

specifically defined by the statute,
but in view of the Supreme Court’s
decision in Northern Pipeline Co. v.
Marathon Pipe Line Co., 458 U.S. 50m
73 L.Ed.3d 598, 102 S.Ct. 2858
(1982), non-core proceedings involve
the “adjudication of state-created
private rights, such as the right to
recover contract damages...” and any
matter “outside the core of federal
bankruptcy power.” Id at 71.
Here, the claims asserted by plaintiff do not invoke
substantive rights created by the Bankruptcy Code but involve
“adjudication of state-created private rights...” Indeed, they are
not even claims of the bankruptcy estate. Plaintiff filed his
bankruptcy case in 1997. In this malpractice action, he is
complaining of conduct which is exclusively post-petition.
According to the Complaint, defendant did not begin to represent
plaintiff until the spring of 1999 (Complaint, ¶8). The
malpractice complained of occurred in the spring of 2000
(Complaint, ¶17, et. seq.), and the damages claimed relate to lost
salary beginning no earlier than 2002.
By statute, a bankruptcy estate consists solely of
“interests of the debtor...as of the commencement of the case...”
[11 U.S.C. §541(a)] (Emphasis added). With respect to causes of
action belonging to the debtor, as the court noted in Bobroff v.
10
Continental Bank, 43 B.R. 746 (E.D. Pa. 1984), aff’d., 766 F.2d 797
(3rd Cir. 1985):
Under the Bankruptcy Code, it is

only those interests in property,
including causes of action, that
belong to the debtor at the time the
petition in bankruptcy is filed that
are considered ‘property of the
estate.’ 11 U.S.C. §541(a)(1)
(1982).
In Bobroff, the events which gave rise to the debtor’s action for
interference with contractual relations occurred following the
filing of the debtor’s petition under Chapter 7 of the Bankruptcy
Code. Accordingly, the District Court held that those claims were
not part of the bankruptcy estate. See, also, In Re Stamm, 222
F.3d 216 (5th Cir. 2000), in which the Court held that wages, earned
after the filing of a petition, were not part of a Chapter 7
bankruptcy estate. A fortiori, here, where the claim is for lost
wages which would have been earned years after the filing of the
petition, the bankruptcy estate can have no claim to any proceeds
earned in this action.
The defendant has filed a motion to dismiss the Complaint
in which defendant claims that since there are factual allegations
in the Complaint referring to a dispute over plaintiff’s ownership
of his shares of Britestarr, the claims belong to the estate.
Defendants reason that since plaintiff’s claim to the Britestarr
shares are property of the bankruptcy estate, the case is related
to plaintiff’s bankruptcy case.
11
Even if defendant were correct, abstention would still be
required. Section 1334(c)(2) presupposes that the Court has
bankruptcy jurisdiction and that the case is related to the
bankruptcy proceeding. The fact, however, that a recovery in the
case would enrich the bankruptcy estate does not mean that the case
“arose in” the bankruptcy proceeding within the meaning of
§1334(c)(2).
In any event, contrary to defendant’s assumption,
plaintiff will not seek damages from defendant with respect to
plaintiff’s ownership of Britestarr shares. Rather, the damages
sought by plaintiff in this case consist of his claim to lost
salary and benefits resulting from defendant’s advice to him that
he resign as President of Britestarr. Plaintiff does not and will
not allege that he was personally damaged as a result of the
failure to settle the dispute concerning the Britestarr shares.
Thus, while plaintiff agrees with defendant that the
Britestarr shares are the property of the bankruptcy estate, this
case does not involve any such claim.
In summary, even if this case may be “related” to
plaintiff’s bankruptcy case, it did not “arise in” that case and
accordingly, the Court is required to abstain from hearing the case
under §1334(c)(2).
12
II.
IN ANY EVENT, THE COURT, IN ITS

DISCRETION, SHOULD REMAND THIS CASE TO THE
STATE COURT PURSUANT TO 28 U.S.C. §1452(b)
Even if the Court were to find that this malpractice
action is a “core proceeding” within the meaning of the Bankruptcy
Court, the Court would still have the authority to remand to state
court pursuant to 28 U.S.C. §1452(b) and 28 U.S.C. §1334(c)(1). As
shown below, the Court should exercise that discretion in favor of
remand.
28 U.S.C. 1452(b) provides that:
the Court to which [a state] claim

or cause of action is removed may
remand such claim or cause of action
on any equitable ground...
28 U.S.C. §1334(c)(1) provides that:
...nothing in this section prevents

a district court in the interests of
justice or in the interest of comity
with State Courts or respect for
State Law from abstaining from
hearing a particular proceeding
arising under title 11 or arising in
or related to a case under title 11.
The analysis under both of the above sections is the same
and has frequently been delineated by the courts, for example, in
Buechner v. Avery, 2005 U.S. Dist. LEXIS 13735 (S.D.N.Y. 2005), at
p. 15:
In deciding whether to exercise

discretion to abstain, among the
factors considered are: (1) the
13
effect on the efficient

administration of the bankruptcy
estate; (2) the extent to which
issues of state law predominate; (3)
the difficulty or unsettled nature
of the applicable state law; (4)
comity with state courts; (5) the
degree of relatedness or remoteness
of the proceeding with the main
bankruptcy case; (6) the existence
of a right to trial by jury; (7)
prejudice to the involuntarily
removed parties; and (8) the
potential for duplicative and
uneconomical use of judicial
resources (Citations omitted).
These factors taken as a whole favor remand: First, as
the Trustee, himself, appears to recognize, keeping the case in
federal court will in no way improve the efficient administration
of Mr. Norkin’s bankruptcy estate, since the claims alleged in the
petition are individual claims of Mr. Norkin. Indeed, adjudicating
the claims in the bankruptcy proceeding would simply impose an
additional burden on the trustee, including attorneys fees.
Clearly, the bankruptcy trustee has expressed no interest in
prosecuting the claims.
Second, the only legal issues in the action are New York
State law issues. Plaintiff’s bankruptcy case is in Connecticut.
If the Court were to refer this case to the bankruptcy court, it
would require a Connecticut federal court to find and apply New
York substantive law, including New York disciplinary rules
governing the conduct of New York lawyers.
14
Third, there may well be difficult issues of state law
pertaining to whether defendant violated its ethical obligations to
plaintiff, whether defendant represented plaintiff individually,
and whether defendant’s advice to plaintiff constituted malpractice
and/or a breach of fiduciary duty.
Fourth, issues of comity favor a remand. As the Court
noted in Buechner v. Avery, supra, at p. 18, “[t]he interests of
comity are promoted by allowing the claims to remain where
plaintiff elected to bring them, i.e., state court.”
In this case, if the Court retains jurisdiction,
defendant will undoubtedly seek to have the case transferred to the
Bankruptcy Court in Connecticut. Thus, a federal court in another
state will be called upon to resolve issues of a attorney’s
obligations to his client under the Disciplinary Rules and law of
New York. Where transfer to another district is likely and where
issues of significance to the transferor state predominate, comity
favors abstention. As the Court noted in Kerusa Co., LLC v.
W10Z/515 Real Estate Ltd. P’Shp., supra (2004 U.S. Dist. LEXIS 8168
at p. 18-19):
In these cases, however, the removal

from state to federal court does not
simply move the matter to a
courtroom across the street. As all
parties agree, removal to this
Court, if effected, is merely a
stepping stone towards transfer of
the cases to the federal court in
North Carolina. The notion that a
federal court in another region of
15
the country, rather than a state

court in New York County, should
resolve disputes about a residential
apartment building in New York City
verges on the bizarre. The local
significance of these cases argues
strongly for returning the matter to
the state courts.
Fifth, the issues in this case are remote from any issues
in Mr. Norkin’s bankruptcy case.
Sixth, and perhaps most important, in the state court,
plaintiff would have a right to a jury trial. Pursuant to 8 U.S.C.
§157(e), if this Court were to refer this matter to the bankruptcy
judge, plaintiff would not be entitled to a jury trial unless
defendant consented, and unless a special designation of
jurisdiction is granted by the district court. As a practical
matter, it is unlikely that defendant would consent to a jury trial
if the case remained in federal court. Clearly, a district court
should hesitate before accepting a case filed in state court where
the action of removal will likely deprive plaintiff of his right to
a jury trial. As the Court noted in Kerusa Co., LLC v. W10Z/515
Real Estate Limited Partnership, 43 Bankr. Ct. Dec. 22 (S.D.N.Y.
2004:
Because a bankruptcy court cannot

conduct a jury trial absent special
designation by the district court
and the consent of all parties, the
presence of a Seventh Amendment jury
trial right in a removed action
weighs heavily in favor of remand
(Citations omitted).
16
The seventh factor - “prejudice to the involuntarily
removed parties” also favors plaintiff. Plaintiff, a New York
resident, chose to bring this action in a New York state court. If
this case is not remanded –- and especially if it is referred to
the Bankruptcy Court in Connecticut –- plaintiff will be deprived
of his choice of forum (See Buechner, supra, at p. 19).
In summary, even if the Court has jurisdiction under
§1334, the Court should abstain from exercising that jurisdiction
and should remand this matter to the state court.
Conclusion
This case should be remanded to the Supreme Court, New
York County pursuant to 28 U.S.C. §1446 or, in the alternative,
pursuant to §1452(b).
Dated: New York, New York

November 23, 2005
Respectfully submitted,
Litman, Asche & Gioiella, LLP

Attorneys for Plaintiff
David Norkin
By:____________________________
Richard M. Asche (RMA-7081)
45 Broadway - 30th Floor

New York, New York 10006
(212) 809-4500
17

Norkin v. DLA Piper Rudnick Gray Cary L.L.P. - Document No. 9

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Norkin v. DLA Piper Rudnick Gray Cary L.L.P. Doc.

UNITED STATES DISTRICT COURT

-against- Case No. 05 CV 9137 (DC)

DLA PIPER RUDNICK GRAY CARY, LLP,

UNITED STATES DISTRICT COURT

-against- Case No. 05 CV 9137 (DC)

DLA PIPER RUDNICK GRAY CARY, LLP,

This memorandum is submitted in support of the motion by

plaintiff David Norkin pursuant to 28 U.S.C. §1434(c) and §1452(b)

it originated. This malpractice action was removed solely on the

purported ground that it “arises in and is related to plaintiff

David Norkin’s Chapter 7 bankruptcy case...and the Chapter 11

bankruptcy case of Britestarr Homes, Inc...” Subject matter

jurisdiction is premised solely on 28 U.S.C. §1334.

As shown below, this case did not “arise in” the

bankruptcy proceeding, and, accordingly, the Court is required to

[28 U.S.C. §1334(c)(2)]. Even if the Court determines that

abstention is not mandatory, the Court should exercise its

discretion and abstain from asserting jurisdiction and remand to

state court pursuant to 28 U.S.C. §§1452(b).

This is an action for malpractice brought under New York

state law. A copy of the Complaint is annexed as Exhibit A to the

attached declaration of Richard M. Asche, dated November 23, 2005.

The plaintiff David Norkin (“Norkin”) alleges that defendant, a

state conflict of interest rules during the course of its

As alleged in the Complaint, Mr. Norkin was the President

and a salaried employee of Britestarr Homes, Inc.

(“Britestarr”)(Complaint, ¶1), a company which intended to develop

land in Bronx, New York as a power plant (¶3). Norkin and

Britestarr retained defendant in 1999 to represent it in connection

with its development efforts (¶8). During the course of the

representation, defendant also rendered legal advice to Norkin

Britestarr entered into an agreement with ABB Equity

Ventures (“ABB”), a potential purchaser of the Bronx property,

of $31.4 million (¶7). While the option was still in effect,

Britestarr encountered financial difficulties (¶15). Moreover, a

dispute arose between Britestarr and Norkin and ABB, resulting in

While the litigation was pending, ABB conveyed to

option period for an additional consideration of $1 million, enough

money to keep Britestarr in business (¶17). Defendant failed to

Britestarr to file a bankruptcy petition (¶18). Of importance to

this case, the defendant also erroneously advised Norkin personally

to resign as President of Britestarr, thereby forfeiting

substantial salary and other benefits [¶23 and 33(a)]. It is

alleged that defendant’s advice to Norkin was improper and

constituted malpractice (Id).

Moreover, unbeknownst to Norkin and Britestarr, defendant

was simultaneously representing the owner of a TransGas power plant

project in Brooklyn, New York. This project would compete directly

with the project to be built on Britestarr’s property. Defendant

stood to receive a much larger fee as project counsel for the

TransGas project than the defendant would receive as counsel for

Britestarr and Norkin. Defendant never disclosed its conflict of

interest to plaintiff [¶¶24-26, 29(a)].

Plaintiff seeks damages solely in his own name from

defendant, independent of any damages suffered by Britestarr.

Specifically, plaintiff seeks compensation for lost salary and

other benefits caused by defendant’s erroneous (and conflict-

driven) advise to resign as President of Britestarr. (Complaint,

¶¶30 and 34, and first “Wherefore” clause).

The Bankruptcy Cases

In January 1997, two and a half years before Britestarr

rise to this action, plaintiff filed a voluntary petition under

Chapter 7 of the Bankruptcy Code in the Bankruptcy Court for the